Trades Cite Safe Harbor in CFPB's Qualified Mortgage Rule

CUNA and NAFCU said Thursday they are pleased the Consumer Financial Protection Bureau added a safe harbor provision to its final qualified mortgage rule.

Specifically, the rule announced by the bureau earlier in the day provides a legal safe harbor that limits civil actions against prime qualified mortgage loans, but also requires documentation of the borrower’s ability to repay.

“Credit unions have been and continue to be responsible lenders who work to meet their members’ needs with safe and sound products,” said NAFCU President/CEO Fred Becker. ”The safe harbor is preferable for all parties involved in a mortgage loan transaction as it provides clarity and certainty, and consequently discourages frivolous lawsuits, claims or defenses.”

CUNA President/CEO Bill Cheney further clarified the rule, saying higher-priced loans will still be entitled to a rebuttable presumption that the lender complied with the rule, should the borrower challenge the loan in court.

Credit unions may have to change underwriting standards to meet the qualified rule, as it mandates that in most cases, a borrower’s total debt-to-income ratio can’t exceed 43% of pre-tax income.

The rule additionally bans as qualified mortgages interest-only loans, negative amortization and mortgages with terms longer than 30 years.

The final rule also included some ability-to-repay provisions that will effectively end teaser rates. Lenders are now prohibited from using teaser rates to determine ability to repay. Other ability-to-pay provisions prohibit no-doc or low-doc approvals and Alt-A mortgages.

The rule did provide some good news for credit unions working with borrowers who are trying to refinance risky mortgages from other lenders like those listed above: those borrowers can refinance to a standard mortgage without undertaking the full underwriting process required by the new ability to repay rules.

The CFPB also proposed new rules to ability pay that would give qualified mortgage status to small lenders, such as credit unions and community banks, which hold mortgages in their own portfolios. The bureau requested comment on that proposed provision, as well as others that would apply to ability to repay.